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Equity Value Strategy

An equity value strategy is an important strategy consideration for many investors for a few important reasons. A value stock portfolio manager will look closely at the fundamentals of the company to determine if the company is undervalued. An important reason that value stocks are a popular investment strategy, is based in the time tested concept of buying-low and selling-high. At the core of this strategy, the manager is attempting to purchase stocks that are undervalued by the market for one of numerous reasons. Possibly the stock had fallen out of favor due to prior poor performance, but has since started to perform better and may not yet be valued appropriately by the market. Two additional reasons why value stocks are popular relate to them typically having a larger market cap and paying a higher dividend.

Characteristics of a Value Strategy

A value portfolio is typically distinguished by a company that has the following characteristics:

  1. Typically has a high dividend yield compared to the market
  2. Low price/book value relative to peers
  3. Low price/earnings value relative to peers

Additional Value Strategy Considerations

A value stock may be out of favor by the market and it will probably have a low multiple applied to it. The relative multiple applied to the stock may not reflect the current fundamental performance of the company and thereby a portfolio manager can realize this discrepancy and attribute a mispricing to the stock.

The goal will be to recognize those stocks that are out of favor, and those stocks that have not been correctly valued by the market. This difference in valuation, will give the opportunity to make a profit on the stock as the market realizes the valuation difference and attributes a more appropriate and higher value for the stock.


Contact Me if you have any questions about investing into value stocks.




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